Retail Intelligence

Philip Morris – the largest tobacco company in the world – has declared it will transform the tobacco industry in support of New Zealand's Smokefree 2025 initiative. In time, it plans to stub out its cigarette range – which includes Marlboro, Parliament and Virginia S and move towards a future of fruity, trendy vapes and e-cigarettes.

It’s a tactical maneuver from the giant cigarette corporate as alternative cigarettes slowly receive validation by scientists, governments, and consumers – but is the move really a ploy for Smokefree 2025, or more of a smoke screen by Philip Morris? And in the midst of all this, has its sudden departure from cigarettes led to a branding identity crisis? We speak to the managing director, James Williams, who explains the company's foray into the smoke-free market.

Cigarette companies are facing a confronting new reality in 2019: cigarette consumptions is in ‘substantial, protracted decline’, the government has planned to phase out combustible cigarettes, and consumers continue to face increasingly exorbitant cigarette prices.

Similar to our food markets, technology has paved the way for new, healthier alternatives, and subsequently, tobacco giants have been forced to make progressive shifts like never before. In America, other behemoth cigarette manufacturers, such as Lorillard and Reynolds American, have moved in mutual support for smoke-free products, as they market a collection of smoke-free cigarettes, e-cigarettes, vapes, and other alternatives, with strong results.

“We are in the process of transformation now," Philip Morris New Zealand managing director James Williams says. "Effectively the majority of our commercial spend is dedicated to reduce loss products and the organisation is dedicated to the products. So, we’ve already transformed a huge part of our business such as day to day operations and investment. Here in New Zealand there is a big opportunity for us to use that transformation to exit combustible cigarettes.”

Part of the reason for such large shifts is that smoke free products are vastly healthier. The use of nicotine is not the harmful element to cigarettes, but the fact that they combust. Therefore, the advent of non-combustible cigarettes gives a chance for smokers to enjoy nicotine without the adverse health effects. This is backed by various bodies of research, which reports e-cigarettes and smoke-free products are 98 percent safer than traditional cigarettes, which presents a social health outcome far greater than previous alternatives, such as nicotine gum.

Moreover, in New Zealand the Ministry of Health have found the new products are up to 95 percent less harmful than continuing to smoke. However, while the science suggests drastically healthier outcomes to smoking – other governments, like Australia, are scrambling to make sense of the nascent industry.

“A few governments around the world – New Zealand being one of them – alongside the Ministry of Health – have acknowledged that the big issue with cigarettes is combustion: when you combust tobacco it releases a lot of harmful constituents in the aerosol.”

Undoubtedly, this new direction from Phillip Morris is led by newly formed legislation in New Zealand to regulate vaping, e-cigarettes and smokeless tobacco products. Williams says that coming legislation on smoke-free products has provided consumers better access and education into these smoke-free, healthier alternatives.

Currently, Phillip Morris has launched its IQOS heated tobacco device alongside plans to launch more reduced-risk products over the next few years to cultivate the alternative cigarette industry. Williams says it’s important to note that different alternative cigarettes have different purposes. An e-cigarette (or a vape) heats up a liquid that contains nicotine and releases aerosol. Whereas, the IQOS heated tobacco device actually heats tobacco and delivers nicotine through the aerosol.

“The benefits we see for heated tobacco is that the ritual is quite similar to smoking, so we see – what we consider – better conversion. Effectively, a lot of evidence around the world suggests 35 percent of people who use an e-cigarette will quit smoking. Whereas, heated tobacco – which we’ve commercialised here – is roughly 60 percent.”

Across the globe, these affirming findings have encouraged companies to be creative in the emerging industry. According to an Amercian Heart Association statement from 2014, there were 466 brands of e-cigarette and 7764 flavours on the global market. Congruently in New Zealand, the vape market has also started to balloon. Local vape companies such as VAPO, NZVAPOR, and Vapourium, among others, have popped up, alongside dedicated online stores like Vape Kiwi. Ostensibly, numerous vape companies boast a warring assortment of products and flavours, from the local Aotearoa E-Juice – Nek Minty – to the globally acclaimed Blue Harvest – a blueberry watermelon and lemonade flavour – to attract the public into vaping.

With opportunity comes risk

In other corners, the health effects are murky. Research on the effects of vaping is still fairly immature, and while some statistics preach the benefits, others suggest there could be pitfalls. A few emerging reports show that e-cigarettes, or vapes could cause smokers to inhale more often and expose them to another toxic chemical – formaldehyde cyanohydrin – allegedly a toxic substance which ‘could be fatal to humans’. Secondly, other avenues of research argues that vapes and e-cigarettes have attracted non-smokers, particularly within the younger generation, to smoke e-cigarettes. These concerns are backed by CDC research, which shows between 2011 and 2012, e-cigerette use doubled among middle school and high school students. So, if Phillip Morris plans to take a moral stance against smoking, how will it moderate its IQOS product being uptaken by non-smokers?

Williams says, “Let’s acknowledge that those people should not be anywhere near any of these types products and should not be getting access to these products. We acknowledge this and we are a very responsible organisation, we have never marketed these products in this market for use.

“It has to be acknowledged that youth have to be protected and we have to be careful with extending to much regulation to protect youth without a lot of evidence on initiation in New Zealand. I think we should be conscious that we don’t make brash decisions on regulations to protect youth that actually impact 600,000 people's lives. So, I think with proper enforcement, proper education, and proper messaging, we can achieve that objective of protecting youth from these products.”

To enable such protection, part of the ‘proper education’ and ‘messaging’ will inevitably have to come from the companies themselves.

So, will Phillip Morris advise for moderate use alongside educational programmes, or will it seek maximum profits and advocate for widespread consumption of its products?

“I think we need a broad approach in terms of how we tackle this issue of smoking and continued smoking in New Zealand. Definitely public awareness and understanding on this category, because the general public view of vaping is the same as cigarettes, which is fundamentally wrong," Williams says.

"With broader understanding from the public, husbands, wives, brothers, and sisters of smokers can be supported to make better decisions. And ultimately, that is one piece that is really needed.”

While its preventative action against smoking – and non-smokers taking up vaping – seems vague, Williams is positive that with broader public awareness and further education on vaping, Smoke-Free 2025 is still in reach.

“Fundamentally, we need to make sure we are only speaking to smokers. If we have that ability with a broad scale complimented with a public awareness campaign, you will see massive shift of smokers into these products in New Zealand. ”

A possible identity crisis

A key part of the Philip Morris transformation lies in its brand strategy. Its road into cleaner smoke is one filled with public relations efforts, which seems to neglect the fact that it still sells cigarettes. Instead, the company identifies itself as a reasonably healthy and ‘innovative’ brand, The Philip Morris website for example, looks closer to a Callaghan Innovation R&D site than that of a cigarette company.

However, while Philip Morris seems to have detached itself from cigarettes, branding regulators are yet to spot the difference between its new IQOS products, and its traditional cigarettes. Recently it has pleaded to the Ministry of Health for more appropriate packaging and health warning regulations after its smoke-free products were boxed in the same packaging as cigarettes.

“We are constantly trying to open up dialogue with the Ministry of Health and regulators on branding. Where it was really disappointing was that the packaging effectively had health warnings that was treated like a cigarette. So, despite recent discussions with the Ministry of Health where they recognised these products were far better for people than continuing to smoke – surely they should not be packaged like a cigarette. Because it’s misleading.

"Packaging is the main communicator for consumers because they carry the packet with them every day. So, they should be at least given accurate information on the packs. It’s our hope that as part of this regulatory review and legislative process that packaging is factored in.”

Williams says the government has already started to look into more appropriate packaging, and hopes that heated tobacco products, e-cigarettes, and other smoke-free alternatives, receive the appropriate health warnings. He says if consumers fundamentally understand the difference between these products and combustible cigarettes, they can make the right decision.

However, the attraction to smoke-free alternatives extends further than the health benefits, but it’s also a subculture, a fashion statement, a political act, as well as a sort of act of subversion against big cigarette companies. Namely, the popular #Fuckbigtobacco hashtag on twitter, along with the numerous e-cigarette events in the U.S that rally against big tobacco companies.

So, will people really drink the Philip Morris transformation kool-aid in New Zealand?

Williams says, “I’ve been working with Philip Morris for a bit over ten years now and there is always these barbeque conversations when you are introduced to someone new and you say who you work for. Credibility in this industry is stuck with past misdeeds, much before I was even born, with all these references to the 60’s and 70’s.

"But Philip Morris, I tell ya, I wouldn’t be working here if the culture wasn’t really pure in terms of how we want to go about things. The only way to change people perceptions is to walk the talk. Out of all the tobacco companies in the world, we are the only ones who have come out and want to end cigarettes.”

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